Mortgage Advice
Mortgages

Understanding Mortgages: Buying a Foreclosed Property

(8/9/2012) In the midst of one of the most uncertain real estate markets in history, it’s more important than ever to be informed. In a continuing series, we take a look at some of the most pressing questions about mortgages, refinancing, home equity, and other real estate options available to you.

One of the many fallouts of the housing crisis has been an increase in foreclosures. While the glut of properties owned by the bank after borrowers defaulted is a negative indicator for housing market health, it has meant an increase in properties that are available for sale at discounted and rock-bottom prices.

For potential homeowners interested in taking advantage of these bargains, there are some intricacies to buying these properties.

Perhaps the most important thing for borrowers to be aware of is the timing involved in foreclosure purchases. Depending on which bank or lender owns the property, response times to offers and other communication can be much slower than in normal home purchases. In addition, title and county deed transfers can take much longer. All of this means that homeowners who have a ticking clock, such as a mandatory time they need to move or buy within, may face difficulty in meeting that timetable.

An additional consideration for buying foreclosed properties is the condition in which the property exists. Many foreclosures are in great shape and move-in ready, and prices will be relatively close to market value. There are, however, “distressed” properties. These are homes in various states of disarray and often sold “as-is”. Homeowners looking for a fixer-upper can purchases these often at deep discount.

Due to the variable state of foreclosed properties, official home inspections are more important than ever. A thorough evaluation of the home and the kinds of repairs and costs to expect is an essential to making a sound investment.

Another thing to consider when looking at foreclosed properties is the neighborhood. While evaluating the neighborhood is always important when buying any property, it’s especially important to ensure the foreclosure is a good deal. If there are widespread foreclosures in the area, no matter how much is invested in the repair and rehab of a home it will be difficult to fight a depressed home value.

Finally, understanding how long the property has been vacant is critical to long-term costs of the purchase. Homes that were foreclosed months ago and have since been vacant have probably sustained more damage. Plumbing gets backed up, bugs and animals may have invaded, and pipes may have cracked or leaked. All of this could translate to extensive and unexpected costs.